Sweden’s GDP Drops at End 2022; Revives Early in 2023

Sweden's GDP, fell at a 2% annual rate in Q4 2022 with private consumption falling at a 1.5% annual rate and public consumption rising by nearly a percentage point at an annual rate. Capital formation has become suddenly very weak, falling at a 3.8% annual rate. Exports are expanding at a 1.8% annual rate; imports are falling at a 3.6% annual rate, undoubtedly reflection of the weak private sector demand and the decline in capital formation. Domestic demand in Sweden falls at a 9.8% annual rate in the fourth quarter adding to a 2.3% annual rate decline in the third quarter. Both of these followed a super-sized 12.5% annual rate gain in Q2 2022.

Sweden’s year-over-year trends show that the robust gains in domestic demand that held through the second quarter of 2022 have come under pressure and given way to a year-over-year decline by the fourth quarter. This is also reflected in a weakening of imports that were running double-digit growth rates until the fourth quarter when the pace slowed to 4.2%. Reflecting conditions abroad, Sweden's exports also have slowed, but not as dramatically as imports. They have backed off from growth rates of 8.5% to 6.5% to a 5.3% annual rate in the fourth quarter. Capital formation growth rates are about half of what they were and in preceding quarters on a year-over-year basis. Public consumption has been slowing. It had been relatively strong through the fourth quarter of 2021 but in 2022 it slowed quite dramatically and it's growing only 0.3% year-over-year in the fourth quarter. At the same time private consumption has slowed sharply from growth rates of 5% to 9% to year-over-year growth of just 0.2% in the third quarter and -2% in the fourth quarter. All of these swings in GDP components translate into a GDP number overall that is faltering. It had seen growth since the third quarter of 2021 fluctuate between growth rates of 4% to 6%; then it suddenly slipped in the third quarter to a 2.5% growth rate and in the fourth quarter to a decline of 0.1%. Clearly Sweden is struggling in terms of GDP growth although the recent monthly tally is looking better.

Sweden's monthly GDP estimate shows a gain of 2% monthly in January reversing what was a 0.7% fall in December. Exports and household consumption added to the positive momentum from government production. The January gain brought the year-over-year gain to 3.6% following what was a 1.5% drop in the previous month on the same basis.

The monthly gaining GDP was boosted by a rise in industrial production; it showed a 4.4% gain in January over its year-ago level, much stronger than the 0.3% rise seen in December. In January manufacturing output rose by 2.2% month-to-month led by investment output which rose 8% followed by intermediate output that rose by 4%. Consumer nondurables output, however, fell very sharply by 13.1% on the month.

Inflation continues to be a problem and while the transportation inflation rate has dropped sharply in January the overall HICP estimate continues to linger at a very high pace, still above 9%.

Business and consumer confidence are weak and continue to fade on trend. In recent months, consumer confidence has stabilized but at a relatively low level while industrial confidence has continued to ease lower. Inflation conditions in Sweden and Europe continue to pose challenges for growth. The ongoing war in Ukraine and the continuing blockage of NATO membership for Sweden by Turkey is an added element of unease that hangs over the heads of the Swedish government and its citizens.